Big decisions · Module 4 of 4
What a home really costs
Closing costs, mortgage insurance and all the costs of owning that never show up on the listing.
Key terms in What a home really costs
- Private mortgage insurance
Private mortgage insurance (PMI) is insurance that lenders may require on a conventional loan when the down payment is below 20 percent of the purchase price. It protects the lender, not the borrower, against loss if the loan is not repaid. The cost is usually added to the monthly payment, although it can also be paid upfront at closing, and it can often be removed once enough equity is built.
Source: Consumer Financial Protection Bureau, What is private mortgage insurance?
- Closing costs
Closing costs, also called settlement costs, are the upfront charges due to obtain a mortgage and transfer ownership of a property. They include lender fees such as origination charges, along with third-party costs like the appraisal, credit report, and title insurance, plus government recording fees and taxes. Lenders itemize them on the Closing Disclosure form delivered before the sale is completed.
Source: Consumer Financial Protection Bureau, Closing Disclosure explainer
- Escrow account
An escrow account, called an impound account in some places, is an account a mortgage servicer holds to pay property-related bills on a homeowner's behalf. A portion of each monthly mortgage payment is deposited into it, and the servicer pays items such as property taxes and homeowners insurance when they come due. Many lenders require one so these bills are paid on time.
Source: Consumer Financial Protection Bureau, What is an escrow or impound account?
- Homeowners insurance
Homeowners insurance is a package policy that combines coverage for a dwelling and personal property with personal liability protection. It generally also pays for additional living expenses if a covered loss makes the home unlivable. Policies list the events they cover and those they exclude, and lenders typically require proof of coverage for the life of a mortgage.
Source: National Association of Insurance Commissioners, Glossary of Insurance Terms
Every term on Lever is in the money glossary.
About this module
What a home really costs is part of Big decisions, one of 15 subjects in Lever. It’s a short run of 5 lessons, about 13 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
More in Big decisions
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1
Renting your first place
How much rent you can afford, deposits, leases, splitting rent fairly, and renter’s insurance.
7 lessons -
2
The number you can move
Negotiating your salary and big purchases, leasing versus buying, and the questions to ask first.
7 lessons -
3
Buying a home
Mortgages, pre-approval, home equity, and fixed versus adjustable rates.
7 lessons
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It’s part of Big decisions. Lever will bring it to you when you’re ready, or you can go straight there.